Morris-Garner and another v One Step (Support) Ltd [2018]

Morris-Garner and another v One Step (Support) Ltd [2018]

Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20 revolves around the issue of negotiating damages arising from a breach of restrictive covenants.

The defendants, former shareholders of One Step (Support) Limited, violated non-compete and non-solicitation covenants, leading to legal action by One Step. The trial judge awarded negotiating damages, considering the difficulty in quantifying the financial loss. The Court of Appeal upheld this decision, asserting the availability of negotiating damages in circumstances where loss is challenging to quantify and the breach is deliberate.

However, the Supreme Court, led by Lord Reed JSC, clarified the nature and test for negotiating damages. The Court established that negotiating damages are not inherently incompatible with compensatory purposes, as they can be appropriate in certain circumstances where the loss suffered is measured by the economic value of the breached right treated as an asset.

The test for negotiating damages involves assessing whether the loss is appropriately measured by the economic value of the breached right, considering it as an asset. Not all contractual rights qualify as assets; examples include breaches of restrictive covenants, intellectual property agreements, or confidentiality agreements. The rationale behind this test is that the claimant has been deprived of a valuable asset, and the loss can be measured by determining the economic value of the right in question.

In applying this test to the this case, the Supreme Court found that the lower courts had not applied the correct approach. The breach in question exposed One Step to a loss of profits and possibly goodwill, typical types of loss for which compensatory damages are frequently awarded. The court emphasised that this was a commercial case where the claimant's interest in the defendants' performance was commercial, not restitutionary.

It is worth noting that prior to this judgment, there was debate regarding whether negotiating damages were compensatory or restitutionary, similar to the discussion in AG v Blake [2001]. The Court of Appeal's decision in Experience Hendrix LLC v PPX Enterprises Inc [2003] had previously considered negotiating damages as restitutionary, measured by the benefits gained by the wrongdoer from the breach.

In conclusion, Morris-Garner v One Step (Support) Ltd clarified the principles governing negotiating damages, emphasising their compensatory nature and providing a structured test for their applicability based on the breached right being considered as an asset.
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